Ackman Enters Stuy Town Fray; Seeks Control, Supports Co-ops

Mr. Ackman’s Pershing Capital Management and Winthrop Realty Trust today put out an announcement that the two firms had bought up $300 million worth of mezzanine debt on the 11,200-apartment property and are seeking to foreclose on the owners, a partnership controlled by Tishman Speyer. (Winthrop has held debt in Stuy Town for some time now, and has previously threatened to take control).

The move is bold, if unexpected. Given that they hold mezzanine debt, which is less senior than the $3 billion mortgage, the two firms would need to first foreclose on the Tishman Speyer partnership (which has been eager to leave the property since it defaulted early in the year), and then work out a deal with the mortgage holders. Adding to the mess, the holders of the first mortgage (which was securitized and is controlled by CW Capital) are advanced in foreclosure proceedings and are likely only a month or two away from gaining full control from Tishman Speyer.

This marks yet another turn for the storied property, which, despite its drab monotonous brick buildings, has a strange magnetism in the world of the top real estate and finance players. It was the single largest property transaction ever when MetLife sold it in 2006 for $5.4 billion. And, in early 2010, it became a symbol of the profligate and reckless spending of the boom when the owners defaulted, and the failed assumptions of the leveraged deal became clear.

Now, the two finance firms, in their aggressive action, appear to want to see the most value in a conversion. In a press release announcing the action—which, notably, was sent out by the political consulting firm Global Strategy Group—Mr. Ackman and Winthrop CEO Michael Ashner signaled their intention to convert the property to co-ops.

From Mr. Ackman’s statement:

“We share the Tenants’ Association objective to complete a non-eviction, affordable, co-op conversion of the property, which will require the restructuring of the property’s first mortgage debt. Our recent experience leading the successful restructuring and recapitalization of General Growth Properties, Inc., the largest real estate restructuring ever, should prove valuable as we work to accomplish this critically important goal.”

As for the tenants—who have been putting together their own bid in talks with CW Capital—they seem to open to talk. In a statement, Councilman Dan Garodnick, who lives in Peter Cooper Village, said “Satisfying the tenants’ goals is the only way for creditors to achieve value in this transaction.”

As the creditors wrangle for control, the tenants continue to be united and committed to seeing the process through to the right outcome. We welcome the opportunity to partner with an entity that will satisfy the tenants’ goals. No future owner can or will be successful without the support and participation of the tenant community.

Time will tell whether they will prove successful. Certainly the market doesn’t believe the debt was worth much: Pershing and Winthrop said in their release they paid $45 million for the $300 million in debt—that’s 15 cents on the dollar.